The Kingdom’s top 10 listed banks saw their aggregate net income grow 3.4% q-o-q in 2Q 2025 to SAR 22.9 bn, moderating from 1Q’s 6.3% q-o-q growth, according to global consulting firm Alvarez & Marsal’s Saudi Arabia’s Banking Pulse 2Q report (pdf). The report attributed the uptick to higher non-interest income and a more measured pace of lending and deposit expansion.

Meet the banks: The report analyzed Saudi National Bank (SNB), Al Rajhi Bank, Riyad Bank, Saudi British Bank, Banque Saudi Fransi, Arab National Bank, Alinma Bank, Bank Albilad, Saudi Investment Bank, and Bank Aljazira.

Net loans and advances for Saudi banks expanded 2.5% q-o-q in 2Q — slightly lower compared to the previous quarter’s 5.4% q-o-q increase — driven by corporate lending, which inched up 3.9% q-o-q during the quarter. The growth mirrored sustained demand from large projects and Vision 2030-linked investments, according to the report.

The slowdown was primarily driven by SNB and Al Rajhi, with SNB posting a 2.4% q-o-q decline in retail loans and a slowdown in corporate lending, which expanded by 4.3% q-o-q in 2Q, compared to 14.5% in the previous quarter. Similarly, Al Rajhi’s lending activity slowed to 2.6% q-o-q in 2Q — down from 4.1% in the previous quarter — with retail loans, which represent 65.9% of the total loans, modestly growing by 1.0% q-o-q.

Net interest margins contracted for the second consecutive quarter to 2.8% — down by 8 basis points from 1Q — on the back of persistent cost pressures, which hiked 11 bps to 3.4%, while yield on credit held steady at 8.0%, according to the report.

Aggregate deposits posted a moderate growth of 2.7% q-o-q in 2Q, boosted by elevated government-related deposits. Loan-to-deposit ratio remained strong at 105.9% — marking a marginal decrease of 22 bps from 1Q — supported by higher government deposits, which enhanced overall funding conditions.

Aggregate interest income rose 4.4% q-o-q in 2Q — reversing 1Q’s 1.0% decline — while non-interest income jumped 5.6% q-o-q in the second quarter. The aggregate cost-to-income ratio improved by 30 bps to 29.5%, with eight of the 10 banks reporting better efficiency.

Asset quality posted better performance in 2Q, as the non-performing loans ratio dipped marginally to 1.0% q-o-q, while the coverage ratio rose 113 bps to 155.9%.

Saudi banks’ return on equity (RoE) rose 12 bps to 15.4%, buoyed by a 3.4% q-o-q rise in net income. “Banks benefitted from higher non-interest income and enhanced operational efficiency,“ AlvarezMarsal’s Head of ME Financial Services Sam Gidoomal wrote in the report. Return on assets remained broadly steady at 2.0%, signaling the sector’s steady performance, according to the report.

The big picture: “Banks entered 2H 2025 from a position of strength – despite episodic share price volatility, the Saudi banking sector remains resilient, supported by strong fundamentals, domestic buffers and increasing profitability and RoE,” Alfarez & Marsal’s Managing Director Quentin Mulet-Marquis said. “Meanwhile, foreseeable pressure on banks’ profitability stemming from lower rates – which to-date have been offset by growth in non-interest income, lower cost of risk and strong cost discipline – coupled with comfortable capital buffers, increased competition and healthy valuation multiples support a gradual increase in M&A activity in the sector,” he added.

Tags: